The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization, Business and Basis of Presentation
Organization and Business
MYR Group Inc. (the “Company”)
is a holding company of specialty electrical construction service providers and conducts operations through its wholly owned subsidiaries,
including: The L. E. Myers Co., a Delaware corporation; Harlan Electric Company, a Michigan corporation; Great Southwestern Construction,
Inc., a Colorado corporation; Sturgeon Electric Company, Inc., a Michigan corporation; MYR Transmission Services, Inc., a Delaware
corporation; E.S. Boulos Company, a Delaware corporation; High Country Line Construction, Inc., a Nevada corporation; Sturgeon
Electric California, LLC, a Delaware limited liability company; GSW Integrated Services, LLC, a Delaware limited liability company;
Huen Electric, Inc., a Delaware corporation; MYR Transmission Services Canada, Ltd., a British Columbia corporation; Northern Transmission
Services, Ltd., a British Columbia corporation and Western Pacific Enterprises Ltd., a British Columbia corporation.
The Company performs construction services
in two business segments: Transmission and Distribution (“T&D”), and Commercial and Industrial (“C&I”).
T&D customers include investor-owned utilities, cooperatives, private developers, government-funded utilities, independent
power producers, independent transmission companies, industrial facility owners and other contractors. T&D provides a broad
range of services, which include design, engineering, procurement, construction, upgrade, maintenance and repair services, with
a particular focus on construction, maintenance and repair. C&I customers include general contractors, commercial and industrial
facility owners, local governments and developers. C&I provides a broad range of services, which include the design, installation,
maintenance and repair of commercial and industrial wiring, the installation of traffic networks and the installation of bridge,
roadway and tunnel lighting.
Basis of Presentation
Interim Consolidated Financial Information
The accompanying unaudited consolidated
financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”) for interim financial reporting and pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial
statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC.
The Company believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position,
results of operations, comprehensive income, stockholders’ equity and cash flows with respect to the interim consolidated
financial statements, have been included. Certain reclassifications were made to prior year amounts to conform to the current year
presentation. The consolidated balance sheet as of December 31, 2018 has been derived from the audited financial statements as
of that date. The results of operations and comprehensive income are not necessarily indicative of the results for the full year
or the results for any future periods. These financial statements should be read in conjunction with the audited financial statements
and related notes for the year ended December 31, 2018, included in the Company’s Annual Report on Form 10-K, which was filed
with the SEC on March 6, 2019.
Foreign Currency
The functional currency for the Company’s
Canadian operations is the Canadian dollar. Assets and liabilities denominated in Canadian dollars are translated into U.S. dollars
at the end-of-period exchange rate. Revenues and expenses are translated using average exchange rates for the periods reported.
Equity accounts are translated at historical rates. Cumulative translation adjustments are included as a separate component of
accumulated other comprehensive income in shareholders’ equity. Foreign currency transaction gains and losses, arising primarily
from changes in exchange rates on short-term monetary assets and liabilities, and ineffective long-term monetary assets and liabilities
are recorded in the “other income, net” line on the consolidated statements of operations. Foreign currency losses
for the three months ended March 31, 2019 and 2018, were not significant. Effective foreign currency transaction gains and losses,
arising primarily from long-term monetary assets and liabilities, are recorded in the foreign currency translation adjustment line
on the consolidated statements of comprehensive income.
Cash and Cash Equivalents
The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be cash equivalents. As of March 31, 2019 and December
31, 2018, the Company held its cash in checking accounts or in highly liquid money market funds. The Company’s banking arrangements
allow the Company to fund outstanding checks when presented to financial institutions for payment. The Company funds all intraday
bank balances overdrafts during the same business day. Checks issued and outstanding in excess of bank balance are recorded in
accounts payable in the Consolidated Balance Sheets and are reflected as other financing activities in the Consolidated Statements
of Cash Flows. As of March 31, 2019, the Company had checks issued and outstanding in excess of our bank balance of $8.4 million.
The Company had no checks issued and outstanding in excess of our bank balance as of December 31, 2018.
Use of Estimates
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses
during the period reported. Actual results could differ from those estimates.
The most significant estimates are related
to estimates of costs to complete contracts, pending change orders and claims, shared savings, insurance reserves, income tax reserves,
estimates surrounding stock-based compensation, the recoverability of goodwill and intangibles and accounts receivable reserves.
The Company estimates a cost accrual every quarter that represents costs incurred but not invoiced for services performed or goods
delivered during the period, and estimates revenue from the contract cost portion of this accrual based on current gross margin
rates to be consistent with its cost method of revenue recognition.
In the three months ended March 31, 2019
and 2018, the Company recognized revenues of $6.8 million and $16.1 million, respectively, related to significant change orders
and/or claims that had been included as contract price adjustments on certain contracts which were in the process of being negotiated
in the normal course of business.
The cost-to-cost method of
accounting requires the Company to make estimates about the expected revenue and gross profit on each of its contracts in
process. During the three months ended March 31, 2019, changes in estimates pertaining to certain projects decreased
consolidated gross margin by 0.8%, which resulted in decreases in operating income of $4.0 million, net income attributable
to MYR Group Inc. of $1.5 million and diluted earnings per common share attributable
to MYR Group Inc. of $0.09.
During the three months ended March 31,
2018, changes in estimates pertaining to certain projects decreased consolidated gross margin by 0.1%, which resulted in decreases
in operating income of $0.3 million, net income attributable
to MYR Group Inc. of $0.2 million and diluted earnings per common share attributable
to MYR Group Inc. of $0.01.
Recent Accounting Pronouncements
Changes to U.S. GAAP are typically established
by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”)
to the FASB’s Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of
all ASUs. The Company, based on its assessment, determined that any recently issued or proposed ASUs not listed below are either
not applicable to the Company or adoption will have minimal impact on its consolidated financial statements
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No.
2016-02,
Leases (Topic 842)
. The amendments under this pronouncement changed the way all leases with durations in excess
of one year are treated. Under this guidance, lessees are required to recognize virtually all leases on the balance sheet as a
right-of-use asset and an associated financing lease liability or operating lease liability. The right-of-use asset represents
the lessee’s right to use, or control the use of, a specified asset for the specified lease term. The lease liability represents
the lessee’s obligation to make lease payments arising from the lease, measured on a discounted basis. Based on certain characteristics,
leases are classified as financing leases or operating leases. Financing lease liabilities, which contain provisions similar to
capitalized leases, are amortized like capital leases under current accounting, as amortization expense and interest expense in
the statement of operations. Operating lease liabilities are amortized on a straight-line basis over the life of the lease as lease
expense in the statement of operations. On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842) using the modified
retrospective method. The modified retrospective basis provides a method for recording existing leases at adoption and in comparative
periods that approximates the results of a full retrospective approach. See Note 4– Lease Obligations for further information
related to the Company’s accounting policy and transition disclosures associated with the adoption of this pronouncement.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued ASU No.
2017-04,
Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
, which simplifies
the subsequent measurement of goodwill, through the elimination of Step 2 from the goodwill impairment test. Instead, an entity
should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying
amount. The update is effective for any annual or interim goodwill impairment tests in fiscal years beginning after December 15,
2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
The guidance requires application on a prospective basis. The Company does not expect that this pronouncement will have a significant
impact on its financial statements.
2. Acquisition
On July 2, 2018, the Company completed the
acquisition of substantially all of the assets of Huen Electric, Inc., an electrical contracting firm based in Illinois, Huen Electric
New Jersey Inc., an electrical contracting firm based in New Jersey, and Huen New York, Inc., an electrical contracting firm based
in New York (collectively, the “Huen Companies”). The Huen Companies provide a wide range of commercial and industrial
electrical construction capabilities under the Company’s C&I segment in Illinois, New Jersey and New York. The total
consideration paid was approximately $47.1 million, subject to working capital and net asset adjustments, which was funded through
borrowings under our credit facility. Total consideration paid will also include a portion associated with the net asset adjustments
which were finalized in March of 2019 and will be paid in 2019. The Company’s final net asset adjustments was $10.8 million
and increased the total consideration to $57.9 million. The final net asset adjustment was recorded in accounts payable on the
consolidated balance sheet as of March 31, 2019. The Company has finalized the purchase price accounting relating to the acquisition
of the Huen Companies. All goodwill and identifiable intangible assets are expected to be tax deductible per applicable Internal
Revenue Service regulations.
The purchase agreement also includes contingent
consideration provisions for margin guarantee adjustments based upon performance subsequent to the acquisition on certain contracts.
The contracts were valued at fair value at the acquisition date, causing no margin guarantee estimate or adjustments for fair value.
Changes in contract estimates, such as modified costs to complete or change order recognition, have resulted and will continue
to result in changes to these margin guarantee estimates. Changes in contingent consideration, subsequent to the acquisition, related
to the margin guarantee adjustments on certain contracts of approximately $0.8 million were recorded in other income for the three
months ended March 31, 2019. Future margin guarantee adjustments, if any, are expected to be recognized through 2019. The Company
could also be required to make compensation payments contingent on the successful achievement of certain performance targets and
continued employment of certain key executives of the Huen Companies. These payments are recognized as compensation expense in
the consolidated statements of operations as incurred. For the three months ended March 31, 2019, the Company recognized $0.3 million
of compensation expense associated with these contingent payments.
The following table summarizes the allocation
of the opening balance sheet from the date of the Huen Companies acquisition through March 31, 2019:
(in thousands)
|
|
(as of
acquisition date)
July 2, 2018
|
|
|
Measurement
Period
Adjustments
|
|
|
Adjusted acquisition
amounts as of
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Consideration paid
|
|
$
|
47,082
|
|
|
$
|
—
|
|
|
$
|
47,082
|
|
Preliminary estimated net asset adjustments
|
|
|
10,749
|
|
|
|
85
|
|
|
|
10,834
|
|
Total consideration, net of net asset adjustments
|
|
$
|
57,831
|
|
|
$
|
85
|
|
|
$
|
57,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
33,903
|
|
|
$
|
(207
|
)
|
|
$
|
33,696
|
|
Contract assets
|
|
|
10,570
|
|
|
|
1,010
|
|
|
|
11,580
|
|
Other current and long term assets
|
|
|
88
|
|
|
|
(11
|
)
|
|
|
77
|
|
Property and equipment
|
|
|
3,188
|
|
|
|
—
|
|
|
|
3,188
|
|
Intangible assets
|
|
|
—
|
|
|
|
24,300
|
|
|
|
24,300
|
|
Accounts payable
|
|
|
(9,592
|
)
|
|
|
(1,274
|
)
|
|
|
(10,866
|
)
|
Contract liabilities
|
|
|
(6,394
|
)
|
|
|
525
|
|
|
|
(5,869
|
)
|
Other current liabilities
|
|
|
(6,570
|
)
|
|
|
49
|
|
|
|
(6,521
|
)
|
Net identifiable assets and liabilities
|
|
|
25,193
|
|
|
|
24,392
|
|
|
|
49,585
|
|
Unallocated intangible assets
|
|
|
9,800
|
|
|
|
(9,800
|
)
|
|
|
—
|
|
Total acquired assets and liabilities
|
|
|
34,993
|
|
|
|
14,592
|
|
|
|
49,585
|
|
Fair value of acquired noncontrolling interest
|
|
|
(1,273
|
)
|
|
|
(7
|
)
|
|
|
(1,280
|
)
|
Goodwill
|
|
$
|
24,111
|
|
|
$
|
(14,500
|
)
|
|
$
|
9,611
|
|
3. Contract Assets and Liabilities
Contracts with customers usually stipulate
the timing of payment, which is defined by the terms found within the various contracts under which work was performed during the
period. Therefore, contract assets and liabilities are created when the timing of costs incurred on work performed does not coincide
with the billing terms, which frequently include retention provisions contained in each contract.
The Company’s consolidated balance sheets present contract
assets which contain unbilled revenue and contract retainages associated with contract work that has been completed and billed
but not paid by customers, pursuant to retainage provisions, which are generally due once the job is completed and approved. The
allowance for collection of contract retainage was not significant as of March 31, 2019 and 2018.
Contract assets consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
(in thousands)
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Unbilled revenue
|
|
$
|
129,850
|
|
|
$
|
111,153
|
|
|
$
|
18,697
|
|
Contract retainages, net
|
|
|
58,219
|
|
|
|
49,128
|
|
|
|
9,091
|
|
Contract assets
|
|
$
|
188,069
|
|
|
$
|
160,281
|
|
|
$
|
27,788
|
|
The Company’s consolidated balance
sheets present contract liabilities which contain deferred revenue and an accrual for contracts in a loss provision.
Contract liabilities consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
(in thousands)
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
27,065
|
|
|
$
|
57,051
|
|
|
$
|
(29,986
|
)
|
Accrued loss provision
|
|
|
1,454
|
|
|
|
1,483
|
|
|
|
(29
|
)
|
Contract liabilities
|
|
$
|
28,519
|
|
|
$
|
58,534
|
|
|
$
|
(30,015
|
)
|
The following table provides information
about contract assets and contract liabilities from contracts with customers:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
(in thousands)
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Contract assets
|
|
$
|
188,069
|
|
|
$
|
160,281
|
|
|
$
|
27,788
|
|
Contract liabilities
|
|
|
(28,519
|
)
|
|
|
(58,534
|
)
|
|
|
30,015
|
|
Net contract assets (liabilities)
|
|
$
|
159,550
|
|
|
$
|
101,747
|
|
|
$
|
57,803
|
|
The difference between the opening and closing
balances of the Company’s contract assets and contract liabilities primarily results from the timing of the Company’s
billings in relation to performance of work. The amounts of revenue recognized in the period that was included in the opening contract
liability balances were $49.4 million for the three months ended March 31, 2019 and $25.4 million for the three months ended March
31, 2018. This revenue consists primarily of work performed on previous billings to customers.
The net asset position for contracts in
process consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Costs and estimated earnings on uncompleted contracts
|
|
$
|
2,448,984
|
|
|
$
|
2,718,713
|
|
Less: Billings to date
|
|
|
2,346,199
|
|
|
|
2,664,611
|
|
|
|
$
|
102,785
|
|
|
$
|
54,102
|
|
The net asset position for contracts in
process is included within the contract asset and contract liability in the accompanying consolidated balance sheets as follows:
|
|
March 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Unbilled revenue
|
|
$
|
129,850
|
|
|
$
|
111,153
|
|
Deferred revenue
|
|
|
(27,065
|
)
|
|
|
(57,051
|
)
|
|
|
$
|
102,785
|
|
|
$
|
54,102
|
|
4. Lease Obligations
Change in Accounting Policy
On January 1, 2019, the
Company adopted ASU No. 2016-02,
Leases (Topic 842)
using the modified retrospective method. Under this guidance, the
net present value of future lease payments are recorded as right-of-use assets and liabilities. In addition, the Company
elected the ‘package of practical expedients’ permitted under the transition guidance within the new standard,
which among other things, allowed the Company to carry forward the historical lease classification. In addition, the
Company elected not to utilize the hindsight practical expedient to determine the lease term for existing leases. The Company
elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify,
the Company did not recognize right-of-use assets or lease liabilities, including not recognizing right-of-use assets or
lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical
expedient to not separate lease and non-lease components for our real estate and vehicle leases. Adoption of the new standard
resulted in the recording of additional operating right-of-use assets and operating lease liabilities of approximately $16.3
million and $16.0 million, respectively, as of January 1, 2019. The adoption of Topic 842 did not impact the Company’s
retained earnings, consolidated net earnings or cash flows.
From time to time, the Company enters into
non-cancelable leases for some of our facility, vehicle and equipment needs. These leases allow the Company to conserve cash by
paying a monthly lease rental fee for the use of facilities, vehicles and equipment rather than purchasing them. The Company’s
leases have remaining terms ranging from one to eight years, some of which may include options to extend the leases for up to five
years, and some of which may include options to terminate the leases within one year. Currently, all of the Company’s leases
contain fixed payment terms. The Company may decide to cancel or terminate a lease before the end of its term, in which case we
are typically liable to the lessor for the remaining lease payments under the term of the lease. Additionally, all of our month-to-month
leases are cancelable by the Company or the lessor, at any time and are not included in our right-of-use asset or liability. At
March 31, 2019, the Company had no leases with residual value guarantees. Typically, the Company has purchase options on the equipment
underlying its long-term leases and many of its short-term rental arrangements. The Company may exercise some of these purchase
options when the need for equipment is on-going and the purchase option price is attractive. Nonperformance-related default covenants,
cross-default provisions, subjective default provisions and material adverse change clauses contained in material lease agreements,
if any, are also evaluated to determine whether those clauses affect lease classification in accordance with “ASC”
Topic 842-10-25. Leases are accounted for as operating or financing leases, depending on the terms of the lease.
Financing Leases
The Company leases some vehicles and certain
equipment under financing leases. The economic substance of the leases is a financing transaction for acquisition of the vehicles
and equipment. Accordingly, the right-of-use assets for these leases are included in the balance sheets in property and equipment,
net of accumulated depreciation, with a corresponding amount recorded in current portion of financing lease obligations or financing
lease obligations, net of current maturities, as appropriate. The financing lease assets are amortized over the life of the lease
or, if shorter, the life of the leased asset, on a straight-line basis and included in depreciation expense. The interest associated
with financing lease obligations is included in interest expense.
Operating Right-of-Use Leases
Operating right-of-use leases are included
in operating lease right-of-use assets, and current portion of operating lease obligations and operating lease obligations, net
of current maturities, as appropriate. Operating lease right-of-use assets and operating lease liabilities are recognized based
on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s
leases do not provide an implicit rate to calculate present value, the Company determines this rate, by estimating the Company’s
incremental borrowing rate, at the lease commencement date. The operating lease right-of-use asset also includes any lease payments
made and initial direct costs incurred and excludes lease incentives. Our lease terms may include options to extend or terminate
the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized
on a straight-line basis over the lease term.
The following is a summary of the lease-related
assets and liabilities recorded as of March 31, 2019:
(in thousands)
|
|
|
|
March 31,
|
|
Assets
|
|
Classification on the Consolidated Balance Sheet
|
|
2019
|
|
Operating lease right-of-use assets
|
|
Operating lease right-of-use assets
|
|
$
|
16,266
|
|
Finance lease right-of-use assets
|
|
Property and equipment, net of accumulated depreciation
|
|
|
2,327
|
|
Total right-of-use lease assets
|
|
|
|
$
|
18,593
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Operating lease obligations
|
|
Current portion of operating lease obligations
|
|
$
|
4,401
|
|
Finance lease obligations
|
|
Current portion of finance lease obligations
|
|
|
1,127
|
|
Total current obligations
|
|
|
|
|
5,528
|
|
Non-current
|
|
|
|
|
|
|
Operating lease obligations
|
|
Operating lease obligations, net of current maturities
|
|
|
11,600
|
|
Finance lease obligations
|
|
Finance lease obligations, net of current maturities
|
|
|
1,275
|
|
Total non-current obligations
|
|
|
|
|
12,875
|
|
Total lease obligations
|
|
|
|
$
|
18,403
|
|
The following is a summary of the lease
terms and discount rates as of March 31, 2019:
Weighted-average remaining lease term - finance leases
|
|
|
2.14 years
|
|
Weighted-average remaining lease term - operating leases
|
|
|
4.31 years
|
|
Weighted-average discount rate - finance leases
|
|
|
2.5
|
%
|
Weighted-average discount rate - operating leases
|
|
|
3.8
|
%
|
The following is a summary of certain information
related to the lease costs for finance and operating leases for the three months ended March 31, 2019:
(in thousands)
|
|
|
|
Lease cost:
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
273
|
|
Interest on lease liabilities
|
|
|
20
|
|
Operating lease cost
|
|
|
1,594
|
|
Short-term lease cost
|
|
|
15
|
|
Variable lease costs
|
|
|
65
|
|
Total lease cost
|
|
$
|
1,967
|
|
The following is a summary of other information
and supplemental cash flow information related to finance and operating leases for three months ended March 31, 2019:
(in thousands)
|
|
|
|
Other information:
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
1,679
|
|
Right-of-use asset obtained in exchange for new operating lease obligations
|
|
$
|
17,200
|
|
The future undiscounted minimum lease payments,
as reconciled to the discounted minimum indicated on the Company’s consolidated balance sheets, under financial leases, less
interest, and under operating leases, less interest, as of March 31, 2019 were as follows:
|
|
Finance
|
|
|
Operating
|
|
|
Total
|
|
(In thousands)
|
|
Lease
Obligations
|
|
|
Lease
Obligations
|
|
|
Lease
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
Remainder of 2019
|
|
$
|
889
|
|
|
$
|
4,693
|
|
|
$
|
5,582
|
|
2020
|
|
|
1,185
|
|
|
|
4,859
|
|
|
|
6,044
|
|
2021
|
|
|
410
|
|
|
|
3,752
|
|
|
|
4,162
|
|
2022
|
|
|
—
|
|
|
|
2,822
|
|
|
|
2,822
|
|
2023
|
|
|
—
|
|
|
|
1,533
|
|
|
|
1,533
|
|
Thereafter
|
|
|
—
|
|
|
|
2,481
|
|
|
|
2,481
|
|
Total minimum lease payments
|
|
|
2,484
|
|
|
|
20,140
|
|
|
|
22,624
|
|
Financing component
|
|
|
(82
|
)
|
|
|
(4,139
|
)
|
|
|
(4,221
|
)
|
Net present value of minimum lease payments
|
|
|
2,402
|
|
|
|
16,001
|
|
|
|
18,403
|
|
Less: Current portion of financing and operating lease obligations
|
|
|
(1,127
|
)
|
|
|
(4,401
|
)
|
|
|
(5,528
|
)
|
Long-term financing and operating lease obligations
|
|
$
|
1,275
|
|
|
$
|
11,600
|
|
|
$
|
12,875
|
|
The financing component for finance lease
obligations represents the interest component of capital leases that will be recognized as interest expense in future periods.
The financing component for operating lease obligations represents the difference between the future operating lease obligations
and their unamortized fair value.
Certain subsidiaries of the Company have
operating leases for facilities from third party companies that are owned, in whole or part, by employees of the subsidiaries.
The terms and rental rates of these leases are at market rental rates. As of March 31, 2019, the minimum lease payments required
under these leases totaled $2.8 million, which is to be paid over the next 4.3 years.
Capital Leases
Prior to the adoption of ASU No. 2016-02,
Leases (Topic 842)
, the Company leased vehicles and certain equipment under capital leases. The economic substance of these
leases was a financing transaction for acquisition of the vehicles and equipment and, accordingly, the leases were included in
the balance sheets in property and equipment, net of accumulated depreciation, with a corresponding amount recorded in current
portion of lease obligations or lease obligations, net of current maturities, as appropriate. The capital lease assets were amortized
on a straight-line basis over the life of the lease or, if shorter, the life of the leased asset, and were included in depreciation
expense in the statements of operations. The interest associated with capital leases was included in interest expense in the statements
of operations.
As of December 31, 2018, the Company had
$2.7 million of capital lease obligations outstanding, $1.1 million of which was classified as a current liability.
As of December 31, 2018, $2.6 million of
leased assets were capitalized in property and equipment, net of accumulated depreciation.
5. Fair Value Measurements
The Company uses the three-tier hierarchy
of fair value measurement, which prioritizes the inputs used in measuring fair value based upon their degree of availability in
external active markets. These tiers include: Level 1 (the highest priority), defined as observable inputs, such as quoted prices
in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly
observable; and Level 3 (the lowest priority), defined as unobservable inputs in which little or no market data exists, therefore
requiring an entity to develop its own assumptions.
As of March 31, 2019 and December 31, 2018,
the Company determined that the carrying value of cash and cash equivalents approximated fair value based on Level 1 inputs. As
of March 31, 2019 and December 31, 2018, the fair values of the Company’s long-term debt and finance lease obligations were
based on Level 2 inputs. The Company’s long-term debt was based on variable and fixed interest rates at March 31, 2019 and
December 31, 2018, for new issues with similar remaining maturities, and approximated carrying value. In addition, based on borrowing
rates currently available to the Company for borrowings with similar terms, the carrying values of the Company's finance lease
obligations also approximated fair value.
6. Debt
The
table below reflects the Company's total debt, including borrowings under its credit agreement and
master loan agreement
for
equipment notes:
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
|
|
|
Balance as of
|
|
|
|
|
|
Stated Interest
|
|
Payment
|
|
Term
|
|
March 31,
|
|
|
December 31,
|
|
(dollar amounts in thousands)
|
|
Inception Date
|
|
Rate (per annum)
|
|
Frequency
|
|
(years)
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving loans
|
|
6/30/2016
|
|
Variable
|
|
Variable
|
|
5
|
|
$
|
79,915
|
|
|
$
|
58,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment Note 1
|
|
9/28/2018
|
|
4.16%
|
|
Semi-annual
|
|
5
|
|
|
11,734
|
|
|
|
12,655
|
|
Equipment Note 2
|
|
9/28/2018
|
|
4.23%
|
|
Semi-annual
|
|
7
|
|
|
11,745
|
|
|
|
12,279
|
|
Equipment Note 3
|
|
12/31/2018
|
|
3.97%
|
|
Semi-annual
|
|
5
|
|
|
2,291
|
|
|
|
2,291
|
|
Equipment Note 4
|
|
12/31/2018
|
|
4.02%
|
|
Semi-annual
|
|
7
|
|
|
2,313
|
|
|
|
2,313
|
|
Equipment Note 5
|
|
12/31/2018
|
|
4.01%
|
|
Semi-annual
|
|
7
|
|
|
1,948
|
|
|
|
1,948
|
|
|
|
|
|
|
|
|
|
|
|
|
30,031
|
|
|
|
31,486
|
|
Total debt
|
|
|
|
|
|
|
|
|
|
|
109,946
|
|
|
|
89,792
|
|
Less: Current portion of long-term debt
|
|
|
|
|
|
|
|
|
|
|
(3,742
|
)
|
|
|
(3,681
|
)
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
$
|
106,204
|
|
|
$
|
86,111
|
|
Credit Agreement
On June 30, 2016, the Company entered into
a five-year amended and restated credit agreement as amended from time to time, (the “Credit Agreement”) with a syndicate
of banks led by JPMorgan Chase Bank, N.A. and Bank of America, N.A, that provided for a $250 million facility (the “Facility”),
which could be used for revolving loans and letters of credit. On September 28, 2018, the Company amended the Credit Agreement.
This amendment, among other things, reduces the amount of the Facility available to be used for letters of credit to a maximum
of $150 million. The Facility also allows for revolving loans and letters of credit in Canadian dollars and other currencies, up
to the U.S. dollar equivalent of $50 million. The Company has an expansion option to increase the commitments under the Facility
or enter into incremental term loans, subject to certain conditions, by up to an additional $100 million upon receipt of additional
commitments from new or existing lenders. Subject to certain exceptions, the Facility is secured by substantially all of the assets
of the Company and its domestic subsidiaries, and by a pledge of substantially all of the capital stock of the Company’s
domestic subsidiaries and 65% of the capital stock of the direct foreign subsidiaries of the Company. Additionally, subject to
certain exceptions, the Company’s domestic subsidiaries also guarantee the repayment of all amounts due under the Credit
Agreement. If an event of default occurs and is continuing, on the terms and subject to the conditions set forth in the Credit
Agreement, amounts outstanding under the Facility may be accelerated and may become or be declared immediately due and payable.
Borrowings under the Credit Agreement are used for working capital, capital expenditures, acquisitions, stock repurchases and other
general corporate purposes.
Amounts borrowed under the Credit Agreement
bear interest, at the Company’s option, at a rate equal to either (1) the Alternate Base Rate (as defined in the Credit Agreement),
plus an applicable margin ranging from 0.00% to 1.00%; or (2) Adjusted LIBO Rate (as defined in the Credit Agreement) plus an applicable
margin ranging from 1.00% to 2.00%. The applicable margin is determined based on the Company’s consolidated leverage ratio
(the “Leverage Ratio”) which is defined in the Credit Agreement as Consolidated Total Indebtedness divided by Consolidated
EBITDA (as defined in the Credit Agreement). Letters of credit issued under the Facility are subject to a letter of credit fee
of 1.125% to 2.125% for non-performance letters of credit or 0.625% to 1.125% for performance letters of credit, based on the Company’s
consolidated Leverage Ratio. The Company is subject to a commitment fee of 0.20% to 0.375%, based on the Company’s consolidated
Leverage Ratio, on any unused portion of the Facility. The Credit Agreement restricts certain types of payments when the Company’s
consolidated Leverage Ratio exceeds 2.25. The weighted average interest rate on borrowings outstanding on the Facility for the
three months ended March 31, 2019 was 3.51% per annum.
Under the Credit Agreement, the Company
is subject to certain financial covenants and must maintain a maximum consolidated Leverage Ratio of 3.0 and a minimum interest
coverage ratio of 3.0, which is defined in the Credit Agreement as Consolidated EBITDA (as defined in the Credit Agreement) divided
by interest expense (as defined in the Credit Agreement). The Credit Agreement also contains a number of covenants, including limitations
on asset sales, investments, indebtedness and liens. In connection with any permitted acquisition where the total consideration
exceeds $50 million, the Company may request that the maximum permitted consolidated Leverage Ratio increase from 3.0 to 3.5. Any
such increase shall begin in the quarter in which such permitted acquisition is consummated and shall continue in effect for four
consecutive fiscal quarters. The Company was in compliance with all of its financial covenants under the Credit Agreement as of
March 31, 2019.
As of March 31, 2019 and December 31, 2018,
the Company had letters of credit outstanding under the Facility of approximately $21.2 million, including $17.6 million related
to the Company’s payment obligation under its insurance programs and approximately $3.6 million related to contract performance
obligations.
The Company had remaining deferred debt
issuance costs totaling $0.6 million as of March 31, 2019, related to the line of credit. As permitted under ASU No. 2015-15, debt
issuance costs have been deferred and are presented as an asset within other assets, which is amortized as interest expense over
the term of the line of credit.
Equipment Notes
On September 28, 2018, the Company entered
into a Master Equipment Loan and Security Agreement (the “Master Loan Agreement”) with Banc of America Leasing &
Capital, LLC (“BofA”). The Master Loan Agreement may be used for the financing of equipment between the Company and
BofA pursuant to one or more equipment notes ("Equipment Notes"). Each Equipment Note executed under the Master Loan
Agreement constitutes a separate, distinct and independent financing of equipment and a contractual obligation of the Company,
which may contain prepayment clauses.
As of March 31, 2019, the Company had five
Equipment Notes outstanding under the Master Loan Agreement that are collateralized by equipment and vehicles owned by the Company.
The following table sets forth our remaining principal payments for the Company’s outstanding Equipment Notes as of March
31, 2019:
|
|
Future
|
|
|
|
Equipment Notes
|
|
(In thousands)
|
|
Principal Payments
|
|
|
|
|
|
Remainder of 2019
|
|
$
|
2,225
|
|
2020
|
|
|
3,835
|
|
2021
|
|
|
3,995
|
|
2022
|
|
|
4,164
|
|
2023
|
|
|
7,328
|
|
2024
|
|
|
1,820
|
|
Thereafter
|
|
|
6,664
|
|
Total future principal payments
|
|
$
|
30,031
|
|
Less: Current portion of equipment notes
|
|
|
(3,742
|
)
|
Long-term principal obligations
|
|
$
|
26,289
|
|
7. Revenue Recognition
Disaggregation of Revenue
A majority of the Company’s revenues
are earned through contracts with customers that normally provide for payment upon completion of specified work or units of work
as identified in the contract. Although there is considerable variation in the terms of these contracts, they are primarily structured
as fixed-price contracts, under which the Company agrees to do the entire project for a fixed amount, or unit-price contracts,
under which the Company agrees to do the work at a fixed price per unit of work as specified in the contract. The Company also
enters into time-and-equipment and time-and-materials contracts under which the Company is paid for labor and equipment at negotiated
hourly billing rates and for other expenses, including materials, as incurred at rates agreed to in the contract. Finally, the
Company sometimes enters into cost-plus contracts, where the Company is paid for costs plus a negotiated margin. On occasion, time-and-equipment,
time-and-materials and cost-plus contracts require the Company to include a guaranteed not-to-exceed maximum price.
Historically, fixed-price and unit-price
contracts have had the highest potential margins; however, they have had a greater risk in terms of profitability because cost
overruns may not be recoverable. Time-and-equipment, time-and-materials and cost-plus contracts have historically had less margin
upside, but generally have had a lower risk of cost overruns. The Company also provides services under master service agreements
(“MSAs”) and other variable-term service agreements. MSAs normally cover maintenance, upgrade and extension services,
as well as new construction. Work performed under MSAs is typically billed on a unit-price, time-and-materials or time-and-equipment
basis. MSAs are typically one to three years in duration; however, most of the Company’s contracts, including MSAs, may be
terminated by the customer on short notice, typically 30 to 90 days, even if the Company is not in default under the contract.
Under MSAs, customers generally agree to use the Company for certain services in a specified geographic region. Most MSAs include
no obligation for the contract counterparty to assign specific volumes of work to the Company and do not require the counterparty
to use the Company exclusively, although in some cases the MSA contract gives the Company a right of first refusal for certain
work. Additional information related to the Company’s market types is provided in Note 11–Segment Information.
The components of the Company’s revenue
by contract type for the three months ended March 31, 2019 and 2018 were as follows:
|
|
Three months ended March 31, 2019
|
|
|
|
T&D
|
|
|
C&I
|
|
|
Total
|
|
(in thousands)
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
Fixed price
|
|
$
|
133,324
|
|
|
|
48.9
|
%
|
|
$
|
133,711
|
|
|
|
68.4
|
%
|
|
$
|
267,035
|
|
|
|
57.0
|
%
|
Unit price
|
|
|
51,194
|
|
|
|
18.8
|
|
|
|
9,988
|
|
|
|
5.1
|
|
|
|
61,182
|
|
|
|
13.1
|
|
T&E
|
|
|
76,308
|
|
|
|
28.0
|
|
|
|
12,531
|
|
|
|
6.4
|
|
|
|
88,839
|
|
|
|
19.0
|
|
Other
|
|
|
11,722
|
|
|
|
4.3
|
|
|
|
39,316
|
|
|
|
20.1
|
|
|
|
51,038
|
|
|
|
10.9
|
|
|
|
$
|
272,548
|
|
|
|
100.0
|
%
|
|
$
|
195,546
|
|
|
|
100.0
|
%
|
|
$
|
468,094
|
|
|
|
100.0
|
%
|
|
|
Three months ended March 31, 2018
|
|
|
|
T&D
|
|
|
C&I
|
|
|
Total
|
|
(in thousands)
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
Fixed price
|
|
$
|
79,435
|
|
|
|
36.7
|
%
|
|
$
|
89,155
|
|
|
|
69.0
|
%
|
|
$
|
168,590
|
|
|
|
48.8
|
%
|
Unit price
|
|
|
45,676
|
|
|
|
21.1
|
|
|
|
9,650
|
|
|
|
7.5
|
|
|
|
55,326
|
|
|
|
16.0
|
|
T&E
|
|
|
80,345
|
|
|
|
37.1
|
|
|
|
9,457
|
|
|
|
7.3
|
|
|
|
89,802
|
|
|
|
26.0
|
|
Other
|
|
|
10,930
|
|
|
|
5.1
|
|
|
|
20,963
|
|
|
|
16.2
|
|
|
|
31,893
|
|
|
|
9.2
|
|
|
|
$
|
216,386
|
|
|
|
100.0
|
%
|
|
$
|
129,225
|
|
|
|
100.0
|
%
|
|
$
|
345,611
|
|
|
|
100.0
|
%
|
The components of the Company’s revenue
by market type for the three months ended March 31, 2019 and 2018 were as follows:
|
|
Three months ended March 31, 2019
|
|
|
Three months ended March 31, 2018
|
|
(in thousands)
|
|
Amount
|
|
|
Percent
|
|
|
Segment
|
|
|
Amount
|
|
|
Percent
|
|
|
Segment
|
|
Transmission
|
|
$
|
187,765
|
|
|
|
40.1
|
%
|
|
|
T&D
|
|
|
$
|
134,452
|
|
|
|
38.9
|
%
|
|
|
T&D
|
|
Distribution
|
|
|
84,783
|
|
|
|
18.1
|
|
|
|
T&D
|
|
|
|
81,934
|
|
|
|
23.7
|
|
|
|
T&D
|
|
Electrical construction
|
|
|
195,546
|
|
|
|
41.8
|
|
|
|
C&I
|
|
|
|
129,225
|
|
|
|
37.4
|
|
|
|
C&I
|
|
Total Revenue
|
|
$
|
468,094
|
|
|
|
100.0
|
%
|
|
|
|
|
|
$
|
345,611
|
|
|
|
100.0
|
%
|
|
|
|
|
Remaining Performance Obligations
As of March 31, 2019, the Company had $1.06
billion of remaining performance obligations. The Company’s remaining performance obligations includes projects that have
a written award, a letter of intent, a notice to proceed or an agreed upon work order to perform work on mutually accepted terms
and conditions.
The following table summarizes the amount
of remaining performance obligations that the Company expects to be realized as of March 31, 2019 and the amount of the remaining
performance obligations that the Company reasonably estimates will not be recognized within the next twelve months.
|
|
Remaining Performance Obligations as of March 31, 2019
|
|
|
|
|
(In thousands)
|
|
Total
|
|
|
Amount estimated to not be
recognized within 12 months
|
|
|
Total at
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
T&D
|
|
$
|
398,382
|
|
|
$
|
40,445
|
|
|
$
|
418,178
|
|
C&I
|
|
|
657,741
|
|
|
|
123,611
|
|
|
|
644,547
|
|
Total
|
|
$
|
1,056,123
|
|
|
$
|
164,056
|
|
|
$
|
1,062,725
|
|
The Company expects a vast majority of the
remaining performance obligations to be recognized within twenty-four months, although the timing of the Company’s performance
is not always under its control. Additionally, the difference between the remaining performance obligations and backlog is due
to the exclusion of a portion of the Company’s MSAs under certain contract types from the Company’s remaining performance
obligations as these contracts can be canceled for convenience at any time by the Company or the customer without considerable
cost incurred by the customer. Additional information related to backlog is provided in “Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations.”
8. Income Taxes
The U.S. federal statutory tax rate was
21% for the three months ended March 31, 2019 and 2018. The Company’s effective tax rate for the three months ended March
31, 2019 was 27.8% of pretax income compared to the effective tax rate for the three months ended March 31, 2018 of 28.9%.
The difference between the U.S. federal
statutory tax rate and the Company’s effective tax rate for the three months ended March 31, 2019 was primarily due to state
income taxes offset by the impact of the Company’s noncontrolling interest.
The difference between the U.S. federal
statutory tax rate and the Company’s effective tax rate for the three months ended March 31, 2018 was primarily due to state
income taxes and the inability to utilize losses experienced in certain Canadian operations.
The Company had unrecognized tax benefits
of approximately $0.4 million as of March 31, 2019 and December 31, 2018, which were included in other liabilities in the accompanying
consolidated balance sheets.
The Company’s policy is to recognize
interest and penalties related to income tax liabilities as a component of income tax expense in the consolidated statements of
operations. The amount of interest and penalties charged to income tax expense related to unrecognized tax benefits was not significant
for the three months ended March 31, 2019 and 2018.
The Company is subject to taxation in various
jurisdictions. The Company is currently under examination by U. S. federal authorities for its 2016 tax returns and its 2017 tax
return is subject to examination by U. S. federal authorities. The Company’s tax returns are subject to examination by various
state authorities for the years 2014 through 2017.
9. Commitments and Contingencies
Purchase Commitments
As of March 31, 2019, the Company had approximately
$10.0 million in outstanding purchase orders for certain construction equipment, with cash outlay scheduled to occur over the next
four months.
Insurance and Claims Accruals
The Company carries insurance policies,
which are subject to certain deductibles, for workers’ compensation, general liability, automobile liability and other insurance
coverage. The deductible per occurrence for each line of coverage is up to $1.0 million, except for wildfire coverage which has
a deductible of $2.0 million. The Company’s health benefit plans are subject to deductibles of up to $0.2 million for qualified
individuals. Losses up to the deductible amounts are accrued based upon the Company’s estimates of the ultimate liability
for claims reported and an estimate of claims incurred but not yet reported.
The insurance and claims accruals are based
on known facts, actuarial estimates and historical trends. While recorded accruals are based on the ultimate liability, which includes
amounts in excess of the deductible, a corresponding receivable for amounts in excess of the deductible is included in current
and long-term assets in the consolidated balance sheets.
Performance and Payment Bonds and Parent Guarantees
In certain circumstances, the Company is
required to provide performance and payment bonds in connection with its future performance on certain contractual commitments.
The Company has indemnified its sureties for any expenses paid out under these bonds. As of March 31, 2019, an aggregate of approximately
$646.1 million in original face amount of bonds issued by the Company’s sureties were outstanding. The Company estimated
the remaining cost to complete these bonded projects was approximately $320.0 million as of March 31, 2019.
From time to time, the Company guarantees
the obligations of wholly owned subsidiaries, including obligations under certain contracts with customers, certain lease agreements,
and, in some states, obligations in connection with obtaining contractors’ licenses. Additionally, from time to time the
Company is required to post letters of credit to guarantee the obligations of wholly owned subsidiaries, which reduces the borrowing
availability under the Facility.
Indemnities
From time to time, pursuant to its service
arrangements, the Company indemnifies its customers for claims related to the services it provides under those service arrangements.
These indemnification obligations may subject the Company to indemnity claims and liabilities and related litigation. The Company
is not aware of any material unrecorded liabilities for asserted claims in connection with these indemnification obligations.
Collective Bargaining Agreements
Many of the Company’s subsidiaries’
craft labor employees are covered by collective bargaining agreements. The agreements require the subsidiaries to pay specified
wages, provide certain benefits and contribute certain amounts to multi-employer pension plans. If a subsidiary withdraws from
any of the multi-employer pension plans or if the plans were to otherwise become underfunded, the subsidiary could incur liabilities
for additional contributions related to these plans. Although the Company has been informed that the underfunding of some of the
multi-employer pension plans to which its subsidiaries contribute have been classified as “critical” status, the Company
is not currently aware of any potential liabilities related to this issue.
Litigation and Other Legal Matters
The Company is from time-to-time party to
various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek,
among other things, compensation for alleged personal injury, breach of contract, property damages, punitive damages, civil penalties
or other losses, or injunctive or declaratory relief.
The Company is routinely subject to other
civil claims, litigation and arbitration, and regulatory investigations arising in the ordinary course of our business, as well
as in respect of our divested businesses. These claims, lawsuits and other proceedings include claims related to the Company’s
current services and operations, as well as our historic operations.
With respect to all such lawsuits, claims
and proceedings, the Company records reserves when it is probable that a liability has been incurred and the amount of loss can
be reasonably estimated. The Company does not believe that any of these proceedings, separately or in the aggregate, would be expected
to have a material adverse effect on the Company’s financial position, results of operations or cash flows.
10. Stock-Based Compensation
The Company maintains two equity compensation
plans under which stock-based compensation has been granted: the 2017 Long-Term Incentive Plan, (the “LTIP”) and the
2007 Long-Term Incentive Plan (the “2007 Plan”). Upon the adoption of the LTIP, awards were no longer granted under
the 2007 Plan. The LTIP provides for grants of (a) incentive stock options qualified as such under U.S. federal income tax laws,
(b) stock options that do not qualify as incentive stock options, (c) stock appreciation rights, (d) restricted stock awards, (e)
restricted stock units, (f) performance share awards, (g) phantom stock units, (h) stock bonuses, (i) dividend equivalents, and
(j) any combination of such grants.
The company grants time-vested stock awards
in the form of restricted stock awards, restricted stock units or equity-settled phantom stock. During the three months ended March
31, 2019, the Company granted 68,104 shares of time-vested stock awards under the LTIP, which vest ratably over three years, at
a weighted average grant date fair value of $33.67. Additionally, 56,912 shares of time-vested stock awards vested during the three
months ended March 31, 2019, at a weighted average grant date fair value of $30.87.
During the three months ended March 31,
2019, the Company granted 72,932 performance share awards under the LTIP at target, which cliff vest on December 31, 2021, at a
weighted average grant date fair value of $39.26. The number of shares actually earned under a performance award may vary from
zero to 200% of the target shares awarded, based upon the Company’s performance compared to certain metrics. The metrics
used were determined at the time of the grant by the Compensation Committee of the Board of Directors and were either based on
internal measures, such as the Company’s financial performance compared to target, or on a market-based metric, such as the
Company’s stock performance compared to a peer group. Performance awards cliff vest upon attainment of the stated performance
targets and minimum service requirements, and are paid in shares of the Company’s common stock.
During the three months ended March 31,
2019, plan participants exercised 11,465 stock options with a weighted average exercise price of $24.68.
The Company recognizes stock-based compensation
expense related to restricted stock awards, phantom stock awards and restricted stock units based on the grant date fair value,
which was the closing price of the Company’s stock on the date of grant. The fair value is expensed over the service period.
The Company recognizes stock-based compensation expense related to market-based performance awards based on the grant date fair
value, which is computed using a Monte Carlo simulation. The fair value is expensed over the service period, which is approximately
2.8 years. The Company recognizes stock-based compensation expense related to internal measure-based performance awards based on
the grant date fair value, which was the closing price of the Company’s stock on the date of grant. The fair value is expensed
over the service period of approximately 2.8 years, and the Company adjusts the stock-based compensation expense related to internal
metric-based performance awards according to its determination of the potential achievement of the performance target at each reporting
date.
11. Segment Information
MYR Group is a holding company of specialty
contractors serving electrical utility infrastructure and commercial construction markets in the United States and western Canada.
The Company has two reporting segments, each a separate operating segment, which are referred to as T&D and C&I. Performance
measurement and resource allocation for the reporting segments are based on many factors. The primary financial measures used to
evaluate the segment information are contract revenues and income from operations, excluding general corporate expenses. General
corporate expenses include corporate facility and staffing costs, which include safety costs, professional fees, IT expenses, management
fees, and intangible amortization. The accounting policies of the segments are the same as those described in the Note 1–
Organization, Business and Significant Accounting Policies to the Financial Statements in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2018.
Transmission and Distribution: The T&D
segment provides a broad range of services on electric transmission and distribution networks and substation facilities which include
design, engineering, procurement, construction, upgrade, maintenance and repair services with a particular focus on construction,
maintenance and repair. T&D services include the construction and maintenance of high voltage transmission lines, substations
and lower voltage underground and overhead distribution systems. The T&D segment also provides emergency restoration services
in response to hurricane, ice or other storm-related damage. T&D customers include investor-owned utilities, cooperatives,
private developers, government-funded utilities, independent power producers, independent transmission companies, industrial facility
owners and other contractors.
Commercial and Industrial: The C&I segment
provides services such as the design, installation, maintenance and repair of commercial and industrial wiring, installation of
traffic networks and the installation of bridge, roadway and tunnel lighting. Typical C&I contracts cover electrical contracting
services for airports, hospitals, data centers, hotels, stadiums, convention centers, manufacturing plants, processing facilities,
waste-water treatment facilities, mining facilities and transportation control and management systems. The C&I segment generally
provides electric construction and maintenance services as a subcontractor to general contractors in the C&I industry, but
also contracts directly with facility owners. The C&I segment has a diverse customer base with many long-standing relationships.
The information in the following table is
derived from the segment’s internal financial reports used for corporate management purposes:
|
|
Three months ended
|
|
|
|
March 31,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Contract revenues:
|
|
|
|
|
|
|
|
|
T&D
|
|
$
|
272,548
|
|
|
$
|
216,386
|
|
C&I
|
|
|
195,546
|
|
|
|
129,225
|
|
|
|
$
|
468,094
|
|
|
$
|
345,611
|
|
Income from operations:
|
|
|
|
|
|
|
|
|
T&D
|
|
$
|
14,930
|
|
|
$
|
13,541
|
|
C&I
|
|
|
5,058
|
|
|
|
5,336
|
|
General Corporate
|
|
|
(10,362
|
)
|
|
|
(10,470
|
)
|
|
|
$
|
9,626
|
|
|
$
|
8,407
|
|
For the three months ended March 31, 2019
and 2018, contract revenues attributable to the Company’s Canadian operations were $12.7 million and $14.7 million, respectively,
predominantly in the C&I segment.
12. Noncontrolling Interest
On July 2, 2018, through the acquisition
of certain assets of the Huen Companies, the Company became the majority controlling interest in a joint venture. As a result,
the Company has consolidated the carrying value of the joint ventures’ assets and liabilities and results of operations in
the Company’s consolidated financial statements. The equity owned by the other joint venture partners has been recorded as
noncontrolling interest in the Company’s consolidated balance sheets, and their portions, if material, of net income (loss)
and other comprehensive income shown as net income or other comprehensive income attributable to noncontrolling interest in the
Company’s consolidated statements of operations and other comprehensive income. Additionally, the joint venture associated
with the Company’s noncontrolling interest is a partnership, and consequently, the tax effect of only the Company’s
share of the joint venture income is recognized by the Company.
The acquired joint venture made no distributions
to its partners, and the Company made no capital contributions to the joint venture during the three months ended March 31, 2019.
Additionally, there have been no changes in ownership during the three months ended March 31, 2019. The project is expected to
be completed in 2019. Net loss attributable to the noncontrolling interest, during the three months ended March 31, 2019, was $0.7
million.
13. Earnings Per Share
The Company computes earnings per share
attributable to MYR Group Inc. using the treasury stock method. Under the treasury stock method, basic earnings per share attributable
to MYR Group Inc. are computed by dividing net income available to stockholders by the weighted average number of common shares
outstanding during the period, and diluted earnings per share are computed by dividing net income available to stockholders by
the weighted average number of common shares outstanding during the period plus all potentially dilutive common stock equivalents,
except in cases where the effect of the common stock equivalent would be anti-dilutive.
Net income attributable to MYR Group Inc.
and the weighted average number of common shares used to compute basic and diluted earnings per share were as follows:
|
|
Three months ended
|
|
|
|
March 31,
|
|
(In thousands, except per share data)
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to MYR Group Inc.
|
|
$
|
7,353
|
|
|
$
|
5,644
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
16,514
|
|
|
|
16,321
|
|
Weighted average dilutive securities
|
|
|
144
|
|
|
|
199
|
|
Weighted average common shares outstanding, diluted
|
|
|
16,658
|
|
|
|
16,520
|
|
|
|
|
|
|
|
|
|
|
Income per common share attributable to MYR Group Inc.:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.45
|
|
|
$
|
0.35
|
|
Diluted
|
|
$
|
0.44
|
|
|
$
|
0.34
|
|
For the three months ended March 31, 2019
and 2018, certain common stock equivalents were excluded from the calculation of dilutive securities because their inclusion would
either have been anti-dilutive or, for stock options, the exercise prices of those stock options were greater than the average
market price of the Company’s common stock for the period. All of the Company’s non-participating unvested restricted
shares were included in the computation of weighted average dilutive securities.
The following table summarizes the shares
of common stock underlying the Company’s unvested stock options and performance awards that were excluded from the calculation
of dilutive securities:
|
|
Three months ended
|
|
|
|
March 31,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Restricted stock
|
|
|
68
|
|
|
|
1
|
|
Performance awards
|
|
|
73
|
|
|
|
49
|
|